Wojcik et al v. Interarch, Inc. et al
Filing
66
MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 11/4/2013:Mailed notice(kef, )
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DAVID J. WOJCIK, DENISE J. WOJCIK,
and SALADS OF SCHAUMBURG, INC.,
Plaintiffs,
v.
INTERARCH, INC., a New Jersey corporation,
SITE DEVELOPMENT, INC., a New Jersey
Corporation, and SALADWORKS, LLC, and
PAUL STECK, PATRICK PANTANO, JOHN
SCARDAPANE, and JOHN MATTES,
Individuals,
Defendants.
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Case No. 13-cv-1332
MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:
On June 7, 2013, Plaintiffs David Wojcik, Denise Wojcik and Salads of Schaumburg,
Inc. filed a seven-count Second Amended Complaint (“Complaint”) against Saladworks, LLC,
several current or former Saladworks’ employees (the “Individual Defendants” or, collectively
with Saladworks, the “Saladworks Defendants”), Site Development, Inc. (“SDI”) and InterArch,
Inc. (R. 23, SAC.) Plaintiffs voluntarily dismissed InterArch with prejudice on August 20,
2013. (R. 62.) With respect to the remaining Defendants, Plaintiffs allege violations of the
Illinois Franchise Disclosure Act and Illinois Consumer Fraud Act (Counts I-II), common-law
fraud (Count III), conspiracy to commit fraud (Count IV) and breach of contract (Count VII)
against the Saladworks Defendants and negligent misrepresentation (Count VI) and conspiracy
to commit fraud (Count IV) against SDI. Before the Court are the Saladworks Defendants’
motion to dismiss (R. 53), SDI’s motion to dismiss (R. 30), and Plaintiffs’ motion to strike the
exhibits attached to Defendants’ briefs and all arguments based on those exhibits (R. 47). For
the following reasons, the Court grants in part and denies in part the Saladworks Defendants’ and
SDI’s motions to dismiss without prejudice, and grants in part and denies in part Plaintiffs’
motion to strike.
BACKGROUND
Plaintiffs allege the following facts, which the Court must accept as true for purposes of
Defendants’ motions to dismiss.
I.
The Parties
Plaintiff Salads of Schaumburg, Inc. is an Illinois corporation with its principal place of
business in Schaumburg, Illinois. (SAC ¶ 3.) David Wojcik (“Wojcik”) is the president and
majority shareholder of Salads of Schaumburg, and his wife, Denise Wojcik, is the treasurer and
only other shareholder of the company. (Id. ¶¶ 1-2.) The Wojciks are both Illinois citizens. (Id.)
Defendant Saladworks is a Delaware limited liability company with its principal place of
business in Conshohocken, Pennsylvania. (Id. ¶ 6.) It franchises Saladworks’ restaurants, which
offer made-to-order salads and a variety of sandwiches, wraps, paninis, soups, and other breads
and beverages. (Id. ¶ 18.) Plaintiffs allege on information and belief that all members of
Saladworks are citizens of Pennsylvania. (Id. ¶ 6.) Defendant SDI is a commercial real estate
firm that specializes in development and site location needs for franchise operators, and it is the
designated real estate firm for Saladworks’ franchises. (Id. ¶¶ 5, 24(a).) SDI is a New Jersey
corporation with its principal place of business in Mount Laurel, New Jersey. (Id. ¶ 5.) The
other remaining Defendants are current or former Saladworks’ employees, all of whom,
Plaintiffs allege on information and belief, are citizens of Pennsylvania. (Id. ¶¶ 7-10.)
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II.
Wojcik and Saladworks Enter into a Franchise Agreement
In 2011, after researching various franchise opportunities, Wojcik contacted Saladworks
about potentially opening a Saladworks’ franchise in the Chicago area. (Id. ¶ 19.) Saladworks
provided Wojcik with its current Franchise Disclosure Document (“FDD”), dated March 8, 2011,
and invited Wojcik to attend a “discovery day” at Saladworks’ offices in Pennsylvania. (Id. ¶¶
19-20.)
During discovery day, Wojcik met with Saladworks’ employees, including three of the
Individual Defendants (Steck, Pantano and Mattes), who interviewed him to determine his
qualifications to be a franchisee, reviewed portions of the FDD with him, and discussed the
possibility of Wojcik opening one or more Saladworks restaurants in the Chicago area. (Id.
¶¶ 23-28.) Discovery day also included a visit to a nearby Saladworks restaurant, known as the
“Gateway Restaurant,” which Individual Defendants Pantano and Mattes described as a typical
Saladworks restaurant in terms of physical appearance and menu offerings. (Id. ¶ 24.) Pantano
and Mattes explained that Saladworks’ designated commercial real estate firm, SDI, and
architecture firm, InterArch, would help Wojcik find a location and design his restaurant if he
became a franchisee. (Id.)
On July 7 or 8, 2011, Wojcik, in reliance on representations Saladworks made in the FDD
and during discovery day, entered a franchise agreement (the “Franchise Agreement”) and an
agreement for multi-unit operators (the “Multi-Unit Development Agreement”) with Saladworks
to allow Wojcik to develop three Saladworks restaurants in the greater Chicago area. (Id. ¶¶ 3233.) According to Wojcik, Individual Defendant Mattes told Wojcik that he would waste his
money paying a lawyer to review the agreements because the terms were non-negotiable. (Id.
¶ 35.) Around this time, Denise Wojcik invested $90,000 in the franchise in reliance on
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Saladworks’ representations, which her husband had communicated to her. (Id. ¶ 33.) Wojcik
used his wife’s investment to pay the Saladworks’ franchise fee. (Id. ¶ 34.)
Wojcik claims that Saladworks made numerous misrepresentations and omissions in its
FDD and other sales materials that induced him to purchase a Saladworks’ franchise. (Id. ¶¶ 3741.) According to Wojcik, Saladworks misrepresented, among other things, that “Saladworks
had the experience and expertise to support a franchisee’s introduction of its brand in the
Chicago market and that Saladworks would be committed to success in this market” (id. ¶ 37(a));
“Wojcik’s Illinois restaurants would basically replicate what he saw on discovery day at the
Gateway Restaurant” (id. ¶ 37(b)); InterArch and SDI “would be . . . strong positive factor[s]” in
helping him develop his restaurants (id. ¶ 37(d), (f)); and Wojcik “would receive a ‘standard
location,’” thus making the financial information Saladworks included in its FDD for franchised
restaurants at “standard locations” relevant and meaningful for him (id. ¶ 39(c)(i)). Wojcik also
alleges that Saladworks omitted a number of material facts, including the following:
(1) Saladworks based the projected construction costs disclosed in its FDD on “site
locations that did not require any substantial changes in use, e.g., that . . . previously
[had] a restaurant on the site . . . .” (Id. ¶ 37(c).)
(2) “[W]ithin any market there can be material differences between particular sites that
will substantially affect the performance of any particular franchise, such that, by
inducing franchisees to believe that he or she would receive a ‘standard location,’”
the franchisee was being misled and deceived into believing that SDI and
Saladworks had developed some sort of process that eliminated the risk of poor site
selection . . . .” (Id. ¶ 38(d)(ii).)
(3) InterArch—Saladworks’ designated architect—“had insufficient familiarity with the
local building codes of Schaumburg or the other Illinois communities in which
Wojcik was planning to build and InterArch was not licensed in Illinois.” (Id. ¶
37(e).)
(4) “[The Saladworks] brand was most successful in a core market area, which included
the area covered by an approximate 250-mile radius of Philadelphia . . . . [but]
beyond the core market area, most of [Saladworks’] franchises were substantially
under-performing in relationship to those that were located within the core market
area,” thus making Saladworks’ disclosures about the financial performance of
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franchised restaurants at “standard locations” deceptive and misleading to a
franchisee in Illinois. (Id. ¶ 38(d)(i).)
(5) The two restaurants for which Saladworks supplied information about average
operating costs obtained free labor from new franchisees in training, thus making the
average operating costs Saladworks disclosed in its FDD materially misleading. (Id.
¶ 40.)
(6) Saladworks “did not intend to do ‘brand development advertising’ in Illinois,” and
thus, a franchisee in Illinois would receive no benefit from its required contributions
to Saladworks’ “Brand Development Fund.” (Id. ¶ 41.)
(7) InterArch, Saladworks’ designated architecture firm, charged a $5,000 “supervision
fee,” in addition to its design fee, if the franchisee chose to have InterArch supervise
construction of the restaurant. (Id. ¶¶ 68-70.)
Plaintiffs allege that if not for Saladworks’ misrepresentations and omissions, Wojcik
would not have entered into the Franchise Agreement or paid Saladworks the $90,000 franchise
fee. (Id. ¶¶ 42-43.)
III.
Wojcik Develops His First Saladworks Restaurant
After entering the Franchise Agreement, Wojcik began preparing to open his first
Saladworks restaurant. (See id. ¶¶ 45-95.) Wojcik contends that Defendants’ misrepresentations
and omissions during various stages of this process doomed his restaurant before it even opened.
A.
Site Selection
Three of the Individual Defendants (Steck, Pantano and Scardapane) and John Silvestri of
SDI traveled to Illinois to help Wojcik review potential sites for his first Saladworks restaurant.
(Id. ¶ 50.) During the trip, the group visited potential sites, reviewed listing information for the
sites and demographics of the surrounding areas, discussed what Saladworks and SDI looked for
in potential sites, and observed customer traffic at competing restaurants in the area. (Id. ¶ 50.)
The group, including Wojcik, ultimately selected a vacant property in the Streets of Woodfield
mall for the site of his first restaurant. (Id. ¶ 52.) Wojcik alleges that he relied on the Individual
Defendants’ and SDI’s apparent site selection expertise in choosing the location. (Id. ¶ 51.)
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Wojcik claims that the Saladworks Defendants and SDI omitted several material facts
during the site selection process. First, Defendants failed to disclose that the previous tenant had
used the site as a retail store, not a restaurant, which would significantly increase Wojcik’s buildout costs. (Id. ¶¶ 53-54.) Second, Defendants failed to disclose that the site’s seating capacity
was too low to allow Wojcik to generate enough sales to turn a profit. (Id. ¶ 59.) According to
Wojcik, Defendants should have known, based on the average turnover rate at most Saladworks
restaurants and “simple arithmetic,” that the site would have too few seats to generate a profit.
(Id. ¶¶ 60-61.) Third, Defendants failed to disclose that Wojcik should expect a drop-off in
business in the cold weather months. (Id. ¶ 63.)
B.
Restaurant Design and Construction
Saladworks required Wojcik to hire InterArch to design his restaurant. (Id. ¶ 24(b).)
Wojcik claims that InterArch’s design differed significantly from the design of the Gateway
Restaurant, which the Saladworks Defendants had represented as a “typical” Saladworks design.
(Id. ¶ 64.) InterArch’s design did not include a self-serve soda fountain like the Gateway
Restaurant and had one point-of-sale register, while the Gateway Restaurant had two. (Id. ¶¶ 64,
67.) Wojcik discussed these issues with the Saladworks Defendants. Saladworks informed
Wojcik that it had changed its format to require the sale of bottled beverages, instead of fountain
drinks. (Id. ¶¶ 65-66.) Saladworks also informed Wojcik that the “standard” design included
only one point-of-sale register and then charged him an additional $4,000 to install a second
register. (Id. ¶¶ 89-90.)
Wojcik hired InterArch to supervise the construction of his Saladworks restaurant. (Id.
¶¶ 68-70, 75.) The bids InterArch received for the construction project were $100,000 to
$120,000 higher than Wojcik had expected based on Defendants’ representations. (Id. ¶ 77.)
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Wojcik claims that Saladworks’ FDD materially underestimated the projected build-out costs by
relying on “‘perfect’ site locations where all utilities met design criteria, and where no
demolition was required to re-design previously existing bathroom facilities.” (Id. ¶ 78(a).)
Additionally, Wojcik claims that InterArch’s failure to comply with the terms of
Wojcik’s lease led to several design flaws, increased construction costs, and caused delays. (Id.
¶ 79.) Wojcik alleges on information and belief that “many if not all the cost overruns that [he]
sustained in the build-out process were a direct result of the fact that Wojcik was required to use
InterArch as the designated Architects; yet they were not licensed in Illinois and had zero
familiarity with the local building codes of Schaumburg.” (Id. ¶ 72.)
C.
Business Plan
Several weeks before his store opened, Wojcik prepared a business plan to cover the
operations of his restaurant. (Id. ¶ 85.) Wojcik claims that the labor and food costs Saladworks
disclosed in its FDD, which he relied on to create his business plan, substantially understated
typical labor and food costs. (Id. ¶ 86.) Because of those increased costs, “Wojcik’s projected
break-even point was not attainable . . . .” (Id.) Saladworks’ business coach, however, told
Wojcik during new franchisee training that his business plan summary “looked okay.” (Id.)
D.
Financing
Wojcik obtained a small business loan from The First Bank of Colorado to finance his
start-up costs. (Id. ¶ 94.) Denise Wojcik co-signed for the loan. (Id.) In the course of trying to
obtain financing for the restaurant, a loan officer for one of the banks Wojcik had approached
informed him that Saladworks had a poor track record with a large number of franchisee
defaults. (Id. ¶ 95.) The loan officer showed Wojcik a report stating that Saladworks franchisees
have a 35% default rate. (Id.) Having read in Saladworks’ FDD that only 10% of Saladworks
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restaurants closed in the last three years, Wojcik contacted Pantano to ask about the default rate.
(Id.) Pantano assured Wojcik that the default rate in the report was inflated because some
franchisees defaulted on account of business investments unrelated to their Saladworks
restaurants. (Id.)
IV.
Wojcik’s Restaurant Shut Down After Six Months
Wojcik’s Saladworks restaurant opened on May 21, 2012, and struggled from the start.
(Id. ¶ 96.) Wojcik realized soon after opening that the lack of seating at his store was a “big
issue.” (Id. ¶ 103.) On numerous occasions, potential customers left the restaurant because they
had nowhere to sit. (Id. ¶ 104.) Additionally, during the week after Wojcik’s restaurant opened,
Saladworks’ business coach informed Wojcik for the first time that “his food and labor costs
would be much higher than normal for the first couple months until Wojcik and his staff could
get a handle on their labor and food usage.” (Id. ¶ 101.) Wojcik tried various local marketing
campaigns to improve the viability of his business with little success, but he received no
assistance from Saladworks through its brand development fund. (Id. ¶¶ 105-07, 109, 115-17.)
Although Wojcik acknowledges that the Franchise Agreement did not require Saladworks to give
him equal brand development funding, he “thought that [Saladworks] would at least spend some
funds on launching a new market.” (Id. ¶ 117.) In the fall of 2012, Denise Wojcik invested an
additional $13,000 in Salads of Schaumburg, Inc. to fund the restaurant’s continuing operations.
(Id. ¶ 108.)
Saladworks evaluated Wojcik’s restaurant in mid-October 2012, and designated Wojcik
an “A” operator. (Id. ¶ 118.) Although, according to the FDD, an “A” operator should average
between $710,000 and $984,000 in annual sales, Wojcik’s restaurant was on pace to net less than
$450,000 in its first year. (Id.) Wojcik closed the restaurant on November 30, 2012. (Id. ¶ 120.)
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V.
Procedural History
Plaintiffs assert five counts against the Saladworks Defendants based on their alleged
fraud (Counts I-IV) and breaches of contract (Count VII) and two counts against SDI for
conspiracy to commit fraud (Count IV) and negligent misrepresentation (Count VI). Plaintiffs
also asserted one count against InterArch for negligent misrepresentation (Count V), but
subsequently settled with InterArch and voluntarily dismissed it from the case. (R. 61-62.)
The Saladworks Defendants and SDI both moved to dismiss Plaintiffs’ claims under
Federal Rule of Civil Procedure 12(b)(6). (R. 30, 53.) In addition to attacking the Complaint for
failure to state a claim, Defendants argue that Plaintiffs previously released all claims they may
have against Saladworks, thus barring their suit. (See Saladworks Mem. at 5-12; SDI Mem. at 810.) Defendants attached the contracts containing Plaintiffs’ releases, the Franchise Agreement,
and the Multi-Unit Development Agreement to their motions to dismiss.1 (R. 55, Rubenstein
Decl. at Ex. A-E; SDI Mem. at Ex. A-B.) Plaintiffs moved to strike the exhibits and all
arguments based on them. (R. 47, Mot. to Strike.)
LEGAL STANDARD
I.
Federal Rule of Civil Procedure 12(b)(6)
“A motion under Rule 12(b)(6) tests whether the complaint states a claim on which relief
may be granted.” Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under Rule 8(a)(2), a
complaint must include “a short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must
“give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell
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SDI submitted only the December 21, 2011 Transfer Agreement and the Addendum to its
motion to dismiss. (See SDI Mem. at Ex. A-B.) For convenience, the Court uses the exhibit
letters used in the Declaration of Gregg A. Rubenstin in support of the Saladworks Defendants’
motion to dismiss when referring to specific exhibits.
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Atl. v. Twombly, 550 U.S. 544, 555, 126 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (citation omitted).
Under the federal notice pleading standards, a plaintiff’s “factual allegations must be enough to
raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Put differently, a
“complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed.
2d 868 (2009) (quoting Twombly, 550 U.S. at 570). “In evaluating the sufficiency of the
complaint, [courts] view it in the light most favorable to the plaintiff, taking as true all wellpleaded factual allegations and making all possible inferences from the allegations in the
plaintiff’s favor.” AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011).
II.
Federal Rule of Civil Procedure 9(b)
In pleading fraud in federal court, Rule 9(b) imposes a higher pleading standard than that
required under Rule 8(a)(2). See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v.
Walgreen Co., 631 F.3d 436, 446 (7th Cir. 2011). Specifically, Rule 9(b) requires a pleading to
state with particularity the circumstances constituting the alleged fraud. See Fed. R. Civ. P. 9(b);
Pirelli, 631 F.3d at 441-42; see also Iqbal, 556 U.S. at 686. This “ordinarily requires describing
the ‘who, what, when, where, and how’ of the fraud, although the exact level of particularity that
is required will necessarily differ based on the facts of the case.” AnchorBank, 649 F.3d at 615
(citation omitted); see also Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 948 (7th Cir. 2013).
“Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”
Fed. R. Civ. R. 9(b); see also Iqbal, 556 U.S. at 686. “[T]he particularity requirement of Rule
9(b) is designed to discourage a ‘sue first, ask questions later’ philosophy.” Pirelli, 631 F.3d 441
(citation omitted). “Heightened pleading in the fraud context is required in part because of the
potential stigmatic injury that comes with alleging fraud and the concomitant desire to ensure
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that such fraught allegations are not lightly leveled.” Beyrer, 722 F.3d at 948 (quoting Pirelli,
631 F.3d at 442).
ANALYSIS
I.
Plaintiffs’ Motion to Strike
Generally, in deciding a motion to dismiss, courts look only to matters within the four
corners of the complaint. See Fed. R. Civ. P. 12(d); Tierney v. Vahle, 304 F.3d 734, 738-39 (7th
Cir. 2002). The Seventh Circuit recognizes limited exceptions to Rule 12(d), however, for
“documents attached to the complaint, documents that are critical to the complaint and referred
to in it” and “information that is subject to proper judicial notice.” Geinosky v. City of Chicago,
675 F.3d 743, 745 n.1 (7th Cir. 2012). “The purpose . . . is to prevent parties from surviving a
motion to dismiss by artful pleading or by failing to attach relevant documents.” 188 LLC v.
Trinity Indus., Inc., 300 F.3d 730, 735 (7th Cir. 2002); Tierney, 304 F.3d at 738 (“[W]ere it not
for the exception, the plaintiff could evade dismissal under Rule 12(b)(6) simply by failing to
attach to his complaint a document that proved that his claim had no merit.”). The classic
example of a document falling within the exception is a contract in a breach of contract suit.
Tierney, 304 F.3d at 738. If a court looks to documents other than the complaint and those that
fall within the limited exceptions to Rule 12(d), the court must convert the motion to one for
summary judgment under Rule 56. See Fed. R. Civ. P. 12(d); Wright v. Assocs. Ins. Cos., 29
F.3d 1244, 1248 (7th Cir. 1994); Ennenga v. Starns, 677 F.3d 766, 773 (7th Cir. 2012). With
respect to the “incorporation by reference” exception,
Defendants attached several documents to their motions to dismiss to support their
argument that Plaintiffs released their claims against Saladworks: (1) the Franchise Agreement
(R. 55, Rubenstein Decl. at Ex. A); (2) the Multi-Unit Development Agreement (id. at Ex. B); (3)
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two agreements dated September 13, 2011 and December 21, 2011, which transferred the
Franchise Agreement and Multi-Unit Development Agreement to a new franchisee (“Transfer
Agreements”) (id. at Ex. C, D); and (4) an addendum to the Multi-Unit Development Agreement
dated April 2, 2012, which granted Salads of Schaumburg a six-month extension to open its
second restaurant (“Addendum”) (id. at Ex. E). The Transfer Agreements and the Addendum
contain the general releases on which Defendants rely. (See Transfer Agreements ¶ 3; Addendum
¶ 2.)
Plaintiffs move to strike the exhibits and all arguments based on them from Defendants’
motions to dismiss. (R. 47, Mot. to Strike.) Plaintiffs argue that Defendants’ “attempt . . . to
stretch the ‘incorporation by attachment’ rule to documents that were not attached [to the
Complaint] is unprecedented and patently absurd.” (Id. at 2; see also R. 50 at 8; R. 63 at 6.)
Plaintiffs also argue that even if the Court considers the exhibits, factual issues surrounding
Plaintiffs’ purported releases—including Saladworks procured the releases through fraud—
prevent the Court from dismissing Plaintiffs’ claims. (Mot. to Strike at 2; R. 50 at 8; R. 63 at 614.)
A.
The Franchise Agreement and Multi-Unit Development Agreement
Defendants argue that the Court may consider the Franchise Agreement and Multi-Unit
Development Agreement because Plaintiffs incorporated these documents into the Complaint by
reference. (Saladworks Mem. at 5; SDI Memo. at 8; SDI Reply at 4.) The Court agrees with
respect to the Franchise Agreement. The Complaint repeatedly refers to the Franchise
Agreement, which serves as the basis of Plaintiffs’ breach of contract claim. (See, e.g., SAC ¶¶
32, 35, 37, 173-80.) It is therefore central to Plaintiffs’ claims, and falls within the
incorporation-by-reference exception. See, e.g., Tierney, 304 F.3d at 738 (noting that
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incorporation-by-reference doctrine typically involves a contract in a breach of contract action);
Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998) (same); see also Gillis v. Meisner, No.
12-3928, 2013 WL 2422682, at *2 (7th Cir. May 31, 2013) (court properly considered the
contents of the parties’ settlement agreement in dismissing the plaintiff’s claim for breach of that
agreement).
The Multi-Unit Development Agreement, however, does not fall within the exception. In
the 180-paragraph Complaint, Plaintiffs make only two passing references to the Multi-Unit
Development Agreement. (See SAC ¶¶ 32, 35.) Plaintiffs do not quote or even discuss the terms
of the Multi-Unit Development Agreement in the Complaint, nor do they rely on the Multi-Unit
Development Agreement to plead their breach of contract count. (See id. ¶¶ 173-80.) Although
mentioned in the Complaint, the Multi-Unit Development Agreement is not central to Plaintiffs’
claims, and therefore, it falls outside the incorporation-by-reference doctrine. See Williams v.
Time Warner Inc., 440 Fed. App’x 7, 9 (2d Cir. 2011) (“A mere passing reference or even
references . . . to a document outside of the complaint does not, on its own, incorporate the
document into the complaint itself.”); see also Rogers v. Garcia, No. 08-cv-02821-WYD-MJW,
2010 WL 3547432, at *2 (D. Col. Sept. 3, 2010) (“[T]he Second Amended Complaint’s passing
references to [the document at issue] do not . . . make it central to Plaintiff’s claims.”); Thomas v.
Westchester County Health Care Corp., 232 F. Supp. 2d 273, 275-76 (S.D.N.Y. 2002) (finding
that a brief reference to a report in one paragraph of the complaint was insufficient to meet the
incorporation by reference exception).
B.
The Transfer Agreements and Addendum
Defendants argue that because the Court may consider the Franchise Agreement and
Multi-Unit Development Agreement in ruling on Defendants’ motions, it also may consider the
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Transfer Agreements and Addendum, which modify and “are incorporated into” the Franchise
Agreement, even though the Complaint does not specifically mention the Transfer Agreements
or Addendum. (See Saladworks Mem. at 5; SDI Mem. at 8 n.1; SDI Reply at 4-5.) SDI cites the
Seventh Circuit’s opinion in Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009), in support of
this argument.
In Hecker, an ERISA case, the plaintiffs sued their employer and the plans’ trustee and
investment advisor for breach of fiduciary duty based, in part, on the defendants’ failure to
disclose a profit sharing arrangement between the trustee and investment advisor. 556 F.3d at
580-81. The district court, in ruling on the defendants’ motions to dismiss, considered several
documents that the defendants had attached to their motions, including seven Summary Plan
Descriptions and two supplements to the Summary Plan Descriptions, to show what the
defendants disclosed to the plaintiffs. Id. at 582. Though the complaint explicitly referred to the
Summary Plan Descriptions in the complaint, it made no mention of the supplements. Id at 583.
The Seventh Circuit held that the district court’s consideration of the Summary Plan
Descriptions and supplements was proper. Id. at 582-83. First, the Summary Plan Descriptions
fit into the incorporation-by-reference exception because the complaint explicitly referred to
them, and they “reveal[ed] the disclosures that [the employer] made to the Plan participants.” Id.
Next, the court determined that the supplements to the Summary Plan Descriptions also fit within
the exception because, “while not mentioned separately in the Complaint, [they] serve much the
same purpose as the originals.” Id. at 583. In sum, even if the complaint does not explicitly
mention an exhibit, the court may consider the exhibit on a motion to dismiss if (1) the exhibit
supplements or amends another document properly before the court and (2) the defendant relies
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on the exhibit for the “same purpose” that made the underlying document central to the
plaintiff’s claims. See id. at 582-83.
Neither the Transfer Agreements nor the Addendum that Defendants attached to their
motions to dismiss fulfill these requirements. First, because the Court cannot consider the MultiUnit Development Agreement, it also cannot consider the Addendum amending the Multi-Unit
Development Agreement under the first Hecker requirement.
Defendants’ reliance on the Transfer Agreements and the Addendum also fails the “same
purpose” test. Defendants argue that the Court may consider these agreements because they
amend the Franchise Agreement. (See SDI Reply at 5.) Defendants, however, do not rely on the
agreements for the amendments they made to the Franchise Agreement; they rely on them for the
general releases Plaintiffs provided as consideration. Cf. Truhlar v. John Grace Branch No. 825
of the Nat’l Ass’n of Letter Carriers, No. 06 C 2232, 2007 WL 1030237, at *8-9 (N.D. Ill. Mar.
30, 2007) (“The court is aware of no authority holding that consideration of extraneous material
on a motion to dismiss is proper” if the document “is ‘central’ not to Plaintiff’s claim, but to
Defendant’s affirmative defense.”). The agreements, therefore, fail to meet the second Hecker
requirement.
Accordingly, mindful of the Seventh Circuit’s warning that the “limited” incorporationby-reference exception is “not intended to grant litigants license to ignore the distinction between
motions to dismiss and motions for summary judgment,”2 the Court grants Plaintiffs’ motion to
strike the Multi-Unit Development Agreement, the Addendum, and the Transfer Agreements
2
See Levenstein, 164 F.3d at 347; see also Albany Bank & Trust Co. v. Exxon Mobil Corp., 310
F.3d 969, 971 (7th Cir. 2002) (Although a court may consider documents that the plaintiff refers
to if the documents are central to the plaintiff’s claims, “the converse is also true: documents that
are neither included in the plaintiff’s complaint nor central to the claim should not be considered
on a motion to dismiss.”).
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along with the arguments based on those agreements from Defendants’ briefs. The Court denies
Plaintiffs’ motion to strike with respect to the Franchise Agreement.
II.
The Saladworks Defendants’ Motion to Dismiss
The Saladworks Defendants move to dismiss Plaintiffs’ claims against them on three
grounds. First, the Saladworks Defendants argue that the general releases contained in the
Transfer Agreements and the Addendum bar Plaintiff’s claims as a matter of law. (See
Saladworks Mem. at 5-12.) Second, the Saladworks Defendants argue that Plaintiffs’ breach of
contract claim fails, in part, because “the covenant of good faith and fair dealing cannot vary the
specific terms of a contract.” (Id. at 11-12; see also Saladworks Reply at 4-5.) Third, the
Saladworks Defendants contend that David and Denise Wojcik have no standing to assert claims
in their individual capacities. (See Saladworks Mem. at 12-13.)
A.
Defendants’ Release Argument Is Premature
A release provides an affirmative defense. See Fed. R. Civ. P. 8(c)(1). A plaintiff need
not plead facts in the complaint to anticipate and defeat potential affirmative defenses.
Independent Tr. Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 935 (7th Cir. 2012). “[I]f the
allegations of the complaint itself set forth everything necessary to satisfy [an] affirmative
defense,” however, the plaintiff pleads himself out of court. See Brooks v. Ross, 578 F.3d 574,
579 (7th Cir. 2009). Defendants argue that the documents attached to their motions to dismiss—
which, according to Defendants, Plaintiffs incorporated into the Complaint by reference—set
forth everything they need to show that Plaintiffs released their claims against Saladworks. (See
Saladworks Mem. at 5-12.) Because the Court has stricken those documents (see Part I supra),
though, and the Complaint itself does not mention the releases, Defendants’ argument fails. See
16
Solis v. Caro, N.C., No. 11 C 6884, 2012 WL 1409558, at *3 (N.D. Ill. Apr. 23, 2012); George v.
Kraft Foods Global, Inc., 674 F. Supp. 2d 1031, 1041-42 (N.D. Ill. 2009).
B.
Plaintiffs Sufficiently Plead a Breach of Contract Claim
Plaintiffs allege that Saladworks breached the implied covenant of good faith and fair
dealing in the Franchise Agreement in several respects: by requiring Plaintiffs to work which
InterArch, requiring Plaintiffs to serve bottled beverages instead of fountain drinks, failing to
spend sufficient funds on brand development in the Chicago market, failing to provide sufficient
support to Plaintiffs, and failing to deliver a successful franchise “system” for operating a
restaurant. (See SAC ¶¶ 175-79.) In their motion to dismiss, the Saladworks Defendants argue
that Plaintiffs cannot rely on alleged breaches of the implied covenant here because “each of the
alleged ‘breaches’ is addressed by specific provisions” of the Franchise Agreement.
(Saladworks Reply at 4; see also Saladworks Mem. at 11-12.)
As an initial matter, the Court notes that whether the implied covenant of good faith and
fair dealing applies to the Franchise Agreement at all is far from settled under Pennsylvania law.3
See, e.g., Ash v. Continental Ins. Co., 593 Pa. 523, 932 A.2d 877, 883 n.2 (Pa. 2007)
(acknowledging that “case law indicates considerable disagreement over the applicability of the
implied duty of good faith”); Bishop v. GNC Franchising LLC, 403 F. Supp. 2d 411, 417-18
(W.D. Pa. 2005) (describing uncertainty in Pennsylvania law regarding application of the
covenant of good faith and fair dealing to franchise agreements). Because Defendants’ argument
focuses on the application of the covenant to specific contractual provisions—not the contract as
a whole—the Court assumes for purposes of these motions that, under Pennsylvania law, the
Franchise Agreement includes an implied covenant of good faith and fair dealing.
3
The Franchise Agreement contains a choice-of-law provision, which states that Pennsylvania
law governs the Agreement. (See Rubenstein Decl. at Ex. A, § 18.1.)
17
The covenant of good faith and fair dealing requires “honesty in fact in the conduct or
transaction concerned.” Benchmark Grp., Inc. v. Penn Tank Lines, Inc., 612 F. Supp. 2d 562,
583 (E.D. Pa. 2009). It serves as “an interpretive tool to determine the parties’ justifiable
expectations in the context of a breach of contract action.” Northview Motors, Inc. v. Chrysler
Motors Corp., 227 F.3d 78, 91-92 (3d Cir. 2000). “Although the precise contours of a party’s
duty under the covenant vary with the context, good faith generally entails ‘faithfulness to an
agreed common purpose and consistency with the justified expectations of the other party.’”
Benchmark Grp., 612 F. Supp. 2d at 583 (quoting Curley v. Allstate Ins. Co., 289 F. Supp. 2d
614, 617 (E.D. Pa. 2003)). Examples of bad faith, on the other hand, include “evasion of the
spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect
performance, abuse of a power to specify terms, and interference with or failure to cooperate in
the other party’s performance.” Mack Trucks Inc. v. BorgWarner Turbo Sys., Inc., 508 Fed.
App’x 180 (3d Cir. 2012) (quoting Kaplan v. Cablevision of PA, Inc., 448 Pa. Super. 306, 317,
671 A.2d 716 (Pa. Super. Ct. 1996)).
To plead a claim for breach of the implied covenant of good faith and fair dealing, a
plaintiff must properly plead the elements of a breach of contract claim. CRS Auto Parts, Inc. v.
National Grange Mut. Ins. Co., 645 F. Supp. 2d 354, 369 (E.D. Pa. 2009) (citation omitted).
That is, a plaintiff must allege the existence of a contract, “that defendants failed to comply with
the covenant of good faith and fair dealing by breaching a specific duty imposed by the contract
other than the covenant of good faith and fair dealing,” and resultant damages. Id. (citation
omitted) (emphasis in original). Notably, the covenant of good faith “cannot be used to override
an express contractual term.” Northview Motors, 227 F.3d at 91.
18
Under these standards, Plaintiffs have sufficiently pled a claim for breach of contract:
they alleged the existence of a contract (the Franchise Agreement), specific contractual
provisions other than the duty of good faith and fair dealing that Saladworks allegedly breached,
and resultant damages. (See SAC ¶¶ 175-80.) The Court disagrees, for the most part, with the
Saladworks Defendants’ contention that Plaintiffs’ allegations use the implied covenant to vary
the specific terms of the Franchise Agreement (see Saladworks Mem. at 11-12). Nearly all of the
contract provisions Plaintiffs cite endow Saladworks with discretion over some aspect of its
performance under the contract. (See, e.g., Rubenstein Decl. at Ex. A, § 7.8.1 (“Franchisor has
the right to change Franchisor’s standards and specifications in Franchisor’s discretion.”); id. §
12.2.1 (“Franchisor will make a good faith effort to expend Brand Development Fund
contributions in the general best interests of the System on a national or regional basis.”); id. §
6.7 (“Franchisor will provide Franchisee continuing consultation and advice as Franchisor deems
necessary and appropriate regarding the management and operation of the Restaurant.”).) If, as
Plaintiffs allege, Saladworks did not exercise that discretion in good faith, it may be liable for
breach of contract.
Not all of Plaintiffs’ breach of contract allegations, however, pass muster.
Two
contractual provisions that Plaintiffs cite—Sections 6.4 and 7.9—do not involve Saladworks’
exercise of discretion. (See SAC ¶¶ 175-76.) Section 6.4 of the Franchise Agreement requires
Saladworks to “furnish Franchisee with the name of its designated and/or approved design and
architectural services vendor” and other specifications. (Rubenstein Decl. at Ex. A, § 6.4.) It
does not, however, govern Saladworks’ selection of vendors or other specifications.
(Id.)
Section 7.9, moreover, covers the franchisee’s obligations to offer certain products for sale, but
does not govern Saladworks’ performance. (Id. § 7.9.) Plaintiffs, therefore, cannot premise their
19
breach of the implied covenant of good faith and fair dealing claim on these specific provisions.
Additionally, Plaintiffs cannot premise their breach of the implied covenant of good faith and
fair dealing claim on paragraph 179 of the Complaint—in which Plaintiffs allege generally that
Saladworks failed to deliver on its promise to provide a successful franchise “System” for
operating an established and successful “Restaurant” (see SAC ¶ 179)—because Defendants’
alleged breach does not relate to a specific duty that the Franchise Agreement imposes. See CRS
Auto Parts, 645 F. Supp. 2d at 369 (the plaintiff must plead that “that defendants failed to
comply with the covenant of good faith and fair dealing by breaching a specific duty imposed by
the contract other than the covenant of good faith and fair dealing” (emphasis in original)). The
Court, therefore, grants the Saladworks’ motion to dismiss Count VII in part and denies it in part
without prejudice.
C.
David and Denise Wojcik Have Standing to Assert Tort Claims in Their
Individual Capacities
“Illinois follows the widespread rule that an action for harm to the corporation must be
brought in the corporate name.”4 Frank v. Hadesman & Frank, Inc., 83 F. 3d 158, 160 (7th Cir.
1996) (collecting cases). Under this rule, a shareholder generally may not bring suit in an
individual capacity for harms done to the corporation. Davis v. Dyson, 387 Ill. App. 3d 676, 710,
326 Ill. Dec. 801, 900 N.E.2d 698 (Ill. App. Ct. 2008). An exception exists, however, that
“allow[s] a shareholder with a direct, personal interest in a cause of action to bring suit even if
the corporation’s rights are also implicated.” Cashman v. Coopers & Lybrand, 251 Ill. App. 3d
730, 733, 191 Ill. Dec. 317, 623 N.E.2d 907 (1993) (quoting Franchise Tax Bd. v. Alcan
4
“Although federal law generally controls the question of standing,” the question of “whether a
shareholder’s claims are derivative or direct for purposes of the shareholder standing rule is
controlled by the law of the state of incorporation, in this case, Illinois.” Rawoof v. Texas
Petroleum Co., Inc., 521 F.3d 740, 762 (7th Cir. 2008) (citing Massey v. Merrill Lynch & Co.,
Inc., 464 F.3d 642, 645 (7th Cir. 2006)).
20
Aluminum Ltd., 493 U.S. 331, 336, 110 S. Ct. 661, 107 L. Ed. 2d 696 (1990)). To fall within this
exception, a shareholder must allege (1) “an injury that is separate and distinct from that suffered
by other shareholders,” Davis, 387 Ill. App. 3d at 710, 326 Ill. Dec. 801, 900 N.E.2d 698
(internal quotations omitted), or (2) that “the [defendant’s] wrongful acts are not only against the
corporation but are also violations of a duty arising from a contract or otherwise, and owed
directly by the wrongdoer to the stockholders.” Zokoych v. Spalding, 36 Ill. App. 3d 654, 663,
344 N.E.2d 805 (Ill. App. Ct. 1976).
The Saladworks Defendants argue that even if Salads of Schaumburg’s claims survive
dismissal, the Court must dismiss David and Denise Wojcik’s individual claims because “a
corporation’s owners cannot bring suit as individuals for harm done to the company.”
(Saladworks Mem. 12-13 (citing Cashman v. Coopers & Lybrand, 623 N.E.2d 907, 909 (Ill.
App. Ct. 1993).) Plaintiffs appear to concede that David and Denise Wojcik do not have
standing to assert the breach of contract count. (See R. 63 at 15 (“The Defendant is confusing
claims for breach of contract (which may only be brought by the contracting party) and claims
for fraud, which can be asserted by any party that is a victim of the fraud.”). The Court,
therefore, dismisses Count VII to the extent it includes breach of contract claims asserted in the
Wojciks’ individual capacities since the Wojciks were not parties to the contract.
With respect to the fraud counts, the Complaint alleges that the Wojciks suffered
individual harm distinct from the harm to the corporation. Specifically, Plaintiffs allege that if
not for Defendants’ fraud, David Wojcik would not have created a Saladworks franchise to begin
with, and Denise Wojcik would not have invested $90,000 in the “franchise opportunity” to pay
Saladworks’ franchise fee. (SAC ¶¶ 33-34, 43.) Defendants, moreover, directed nearly all of
their alleged wrongdoing to David Wojcik individually, rather than to the corporation—indeed,
21
Salads of Schaumburg did not even exist at the time of most of Defendants’ alleged
misrepresentations. These allegations sufficiently show that the Wojciks suffered individual
harm distinct from the harm to their corporation. See Mann v. Kemper Fin. Cos., Inc., 247 Ill.
App. 3d 966, 979-80, 187 Ill. Dec. 726, 618 N.E.2d 317 (Ill. App. Ct. 1992) (reversing dismissal
of fraud claims brought in mutual fund investors’ individual capacities where they alleged that
the defendants’ fraudulent prospectuses induced them to invest in the fund); eOnline v. Chicago
Consulting Partners, No. 01 C 1918, 2002 WL 484865, at *7 (N.D. Ill. Mar. 29, 2002)
(“[F]raudulent representations made for the purpose of inducing shareholders to agree to the sale
of the assets, and made directly to shareholders by the corporation, [are] proper allegations of
individual shareholder injury.” (quoting Mann, 247 Ill. App. 3d at 976, 187 Ill. Dec. 726, 618
N.E.2d 317)).
In Mann, investors in two mutual funds filed a class action against the funds’ manager
alleging claims for common law fraud and consumer fraud, among others, arising out of alleged
misrepresentations the defendants made in marketing materials for the funds. 247 Ill. App. 3d at
971, 187 Ill. Dec. 726, 618 N.E.2d 317. The plaintiffs asserted that the defendants’
misrepresentations fraudulently induced them to invest in the mutual funds. Id. at 973. After
surveying relevant case law, the Illinois appellate court held that because the mutual fund could
not have brought the claims at issue on behalf of its investors, the plaintiffs had standing to assert
those claims in their individual capacities. Id. 979-80. After all, “only the plaintiffs and other
investors who invested in the securities, and not the mutual funds, could allege that
misrepresentations in prospectuses induced them to invest.” Id. at 980. The same is true here:
the Wojciks allege that Saladworks’ misrepresentations induced them to invest in a Saladworks’
22
franchise. The Wojciks, therefore, have standing to assert their fraud claims in their individual
capacities.
III.
SDI’s Motion to Dismiss
SDI moves to dismiss Count IV for conspiracy to commit fraud and Count VI for
negligent misrepresentations on the following grounds: (1) Plaintiffs released their claims against
Saladworks, which bars Plaintiffs’ claim against SDI for allegedly conspiring with Saladworks;
(2) Plaintiffs failed to plead a conspiracy to commit fraud with particularity; and (3) Plaintiffs
failed to plead SDI’s alleged misrepresentations and Plaintiffs’ reliance on them. SDI’s
argument regarding Plaintiffs’ purported releases fails for the same reasons as Saladworks’
argument. (See Parts I & II.A supra.) The Court now turns to SDI’s arguments attacking the
sufficiency of Plaintiffs’ allegations.
A.
Plaintiffs Fail to Plead a Claim for Conspiracy to Commit Fraud
Illinois law defines civil conspiracy as “a combination of two or more persons for the
purpose of accomplishing by concerted action either an unlawful purpose or a lawful purpose by
unlawful means.” McClure v. Owens Corning Fiberglas Corp., 188 Ill. 2d 102, 133, 241 Ill.
Dec. 787, 720 N.E.2d 242 (Ill. 1999). To state a claim for civil conspiracy under Illinois law, a
plaintiff must allege (1) an agreement to accomplish an unlawful purpose or a lawful purpose by
unlawful means, (2) a tortious act committed in furtherance of that agreement, and (3) an injury.
Reuter v. MasterCard Int’l, Inc., 397 Ill. App. 3d 915, 927, 337 Ill. Dec. 67, 921 N.E.2d 1205
(Ill. App. Ct. 2010). The agreement is “a necessary and important” element of a conspiracy
claim. Id. (quoting Adcock v. Brakegate, Ltd., 164 Ill. 2d 54, 62, 206 Ill. Dec. 636, 645 N.E.2d
888 (Ill. 1994)).
23
Civil conspiracy is an intentional tort and it “requires proof that a defendant ‘knowingly
and voluntarily participate[d] in a common scheme to commit an unlawful act or a lawful act in
an unlawful manner.’” McClure, 188 Ill. 2d at 133, 241 Ill. Dec. 787, 720 N.E.2d 242 (quoting
Adcock, 164 Ill. 2d at 62, 206 Ill. Dec. 636, 645 N.E.2d 888). “[A] defendant who innocently
performs an act which happens to fortuitously further the tortious purpose of another is not liable
under the theory of civil conspiracy.” Adcock, 164 Ill. 2d at 54 206 Ill. Dec. 636, 645 N.E.2d
888. “Accidental, inadvertent, or negligent participation in a common scheme does not amount
to conspiracy[,]” nor does a defendant’s “[m]ere knowledge of the fraudulent or illegal actions of
another.” McClure, 188 Ill. 2d at133-34, 241 Ill. Dec. 787, 720 N.E.2d 242 (citations omitted).
In federal court, a claim for conspiracy to commit fraud must meet the heightened
pleading standard that Rule 9(b) imposes. See Fed. R. Civ. P. 9(b); Cincinnati Life Ins. Co. v.
Beyrer, 722 F.3d 939, 948-49 (7th Cir. 2013); Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d
502, 509 (7th Cir. 2007). The complaint, therefore, must allege with particularity “the nature of
the purported agreement to defraud plaintiffs, such as when it was made or which individuals . . .
arranged the conspiracy.” Id. Merely alleging that the defendants “agreed,” without providing
the “critical details” of the alleged agreement, is insufficient to plead a conspiracy. See id.;
Sterling Fed. Bank, F.S.B. v. Credit Suisse First Boston Corp., No. 07-C-2922, 2008 WL
4924926, at *9 (N.D. Ill. Nov. 14, 2008) (citing Borsellino, 477 F.3d at 509); see also Cooney v.
Rossiter, 583 F.3d 967, 971 (7th Cir, 2009) (affirming dismissal where complaint “is bereft of
any suggestion, beyond a bare conclusion, that the remaining defendants were leagued in a
conspiracy with the dismissed defendants”).
Paragraph 149 of the Complaint—the sole allegation regarding SDI’s and Saladworks’
alleged agreement to defraud—states:
24
On a date unknown to Plaintiffs, Defendants, SDI and Saladworks, acting through
their respective officers or employees, entered into an actual or tacit agreement to
commit fraud against Saladworks franchisees such as the Plaintiffs in this case,
who would be duped into investing their money into the development of
Saladworks restaurants in new markets in which Saladworks did not have a
successful presence and/or into new an unproven versions of a Saladworks
restaurant.
(SAC ¶ 149.) Plaintiffs argue, without citation to any legal authority, that this allegation “is
more than sufficient” to plead a conspiratorial agreement. (R. 50 at 6.) The Court disagrees.
Plaintiffs have not alleged any of the “critical details”—the “who, what, when, where, and
how”—of the conspiracy. See Borsellino, 477 F.3d at 507, 509; see also Cooney, 583 F.3d at
971 (affirming dismissal of a conspiracy claim where the complaint contained no suggestion,
“beyond a bare conclusion,” that the defendants “were leagued in a conspiracy”). Indeed,
paragraph 149, when stripped of excess verbiage, provides no more than the kind of “bare
conclusions” of conspiracy that courts have consistently held are insufficient to state a claim.
See, e.g., Cooney, 583 F.3d at 971; Borsellino, 477 F.3d at 509 (affirming dismissal of a
conspiracy to defraud count where “the complaint tells . . . nothing about the nature of the
purported agreement to defraud”); S & A Futures, LLC—Series 2 v. Sysco Chi., Inc., No. 11 C
7629, 2012 WL 851556, at *8-9 (N.D. Ill. Mar. 13, 2012) (dismissing conspiracy claim because
although the complaint “reference[d] a purpose and activity for the alleged conspiracy, it
include[d] nothing about the alleged conspiracy among the defendants beyond the conclusory
statements that the defendants ‘agreed’ and ‘act[ed] in concert’).
In addition to failing to allege an “agreement,” Plaintiffs also fail to allege that SDI
“knowingly and intentionally” participated in a scheme to defraud Plaintiffs. Adcock, 164 Ill. 2d
at 54, 206 Ill. Dec. 636, 645 N.E.2d 888. Plaintiffs argue that the allegations in the Complaint
regarding SDI’s pre-existing relationship with Saladworks and the myriad of alleged problems
with the restaurant site SDI recommended are sufficient to give rise to a plausible inference of
25
intent to defraud. (See R. 50 at 6-8.) Not so. The allegations surrounding SDI’s
recommendation of the “Streets of Woodfield” site suggest negligence, at most, not an intent to
defraud. See Damato v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 878 F. Supp. 1156, 1162
(N.D. Ill. 1995) (“Allegations of negligent conduct are . . . insufficient to support a fraud
claim.”); see also Adcock, 164 Ill. 2d at 64, 206 Ill. Dec. 636, 645 N.E.2d 888 (“There is no such
thing as accidental, inadvertent or negligent participation in a conspiracy.”). Furthermore, SDI’s
pre-existing relationship with Saladworks, without more, does not create a plausible inference of
an intent to defraud. See Twombly, 550 U.S. at 556-57, 127 S. Ct. 1955, 167 L. Ed. 2d 929
(“Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of
agreement at some unidentified point does not supply facts adequate to show illegality.”).; see
also Borsellino, 477 F.3d at 509 (requiring the plaintiffs to allege more than just the business
relationships among the alleged co-conspirators and “a handful of unreasonable inferences” to
plead their claim for conspiracy to defraud). The Court, therefore, dismisses Plaintiffs’
conspiracy claim without prejudice.
B.
Plaintiffs Adequately Plead a Claim for Negligent Misrepresentation
To state a claim for negligent misrepresentation under Illinois law, a plaintiff must allege:
“(1) a false statement of material fact; (2) carelessness or negligence in ascertaining the truth or
falsity of the statement by the party making it; (3) an intention to induce the other party to act;
resulting from such reliance; (4) action by the other party in reliance on the truth of the
statement; (5) damage to the other party resulting from such reliance; and (6) a duty on the party
making the statement to communicate accurate information.” First Midwest Bank, N.A., v.
Stewart Title Guar. Co., 218 Ill. 2d 326, 334-35 300 Ill. Dec. 69, 843 N.E.3d 327 (Ill. 2006)
(citations omitted). Where a plaintiff seeks purely economic damages, a party has a duty to
26
avoid negligently conveying false information only if the party is in the business of supplying
information for the guidance of others or their business transactions. Id. at 335. Courts measure
the adequacy of negligent misrepresentation claims against the general pleading standard set
forth in Rule 8, not the heightened pleading standard in Rule 9(b). Tricontinental Indus., Ltd. v.
PricewaterhouseCoopers, LLP, 475 F.3d 824, 833, 838 (7th Cir. 2007).
Plaintiffs allege all of the elements of their negligent misrepresentation claim. Plaintiffs
allege that SDI, as a professional site selection and franchise development firm, was in the
business of supplying information to Plaintiffs and, therefore, owed a duty to provide accurate
information. (SAC ¶¶ 167-68.) They further alleged that SDI breached its duty to provide
accurate information by “falsely represent[ing], both by affirmative misrepresentations and by
omission, that [SDI] had the requisite competence, qualifications, experience, and credentials to
provide architectural services to the prospective franchisee” (id. ¶ 170) and by failing to disclose
material information about the “Streets of Woodfield” location CDI recommended to Wojcik.
(Id. ¶¶ 51, 54, 58-60.) Finally, Plaintiffs allege that they relied on SDI’s misrepresentations and
omissions and suffered damages as a result. (See id. ¶¶ 171-72.) Plaintiffs, therefore, have
adequately pled their claim for negligent misrepresentation.
SDI attacks Plaintiffs’ negligent misrepresentation claim on three fronts. First, SDI
argues that the Plaintiffs’ claim fails because Plaintiffs fail to identify any affirmative
misrepresentations that SDI made. (SDI Mem. at 11-12; see also SDI Reply at 6-7.) Because
Rule 9(b) does not apply to claims for negligent misrepresentation, however, Plaintiffs need not
plead the particulars of SDI’s alleged misrepresentations. See Tricontinental Indus., Ltd. v.
PricewaterhouseCoopers, LLP, 475 F.3d at 833, 838. Rule 8 requires only that Plaintiffs plead
sufficient facts to give Defendants fair notice of their claims and to state a plausible claim for
27
relief. Fed. R. Civ. P. 8(a); Twombly, 550 U.S. at 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929.
Plaintiffs’ allegations meet this standard.
Second, SDI argues the Court should dismiss Plaintiffs’ negligent misrepresentation
claim because SDI’s alleged misrepresentations consist of non-actionable statements of opinion
or predictions of future events, not statements of fact. (See SDI Mem. at 13-14; see also SDI
Reply Br. at 6-7.) The Court disagrees. “[W]hether a statement is one of fact or opinion
depends on the factual circumstances.” Costello v. Grundon, 651 F.3d 614, 639 (7th Cir. 2011);
see also Rasgaitis v. Waterstone Fin. Grp., Inc., 2013 IL App. (2d) 111112, 368 Ill. Dec. 814,
985 N.E.2d 621, 634 (Ill. App. Ct. 2013) (“Whether a statement is one of fact or of opinion
depends on all the facts and circumstances of a particular case.”). “[T]he general rule is that it is
not ‘the form of the statement which is important or controlling, but the sense in which it is
reasonably understood.’” Rasgaitis, 2013 IL App. (2d) 111112, 368 Ill. Dec. 814, 985 N.E.2d at
634 (quoting West v. Western Cas. & Sur. Co., 846 F.2d 387, 394 (7th Cir. 1988)). Because the
alleged representations and omissions at issue may fall into either the “fact” category or
“opinion” category depending on the context, the Court cannot resolve this issue at the motion to
dismiss stage.
Third, SDI argues that Plaintiffs’ negligent misrepresentation claim fails because
Plaintiffs cannot plead reliance. (See SDI Mem. at 13.) SDI argues that Plaintiffs used SDI as
their site selection consultants because the Franchise Agreement required them to do so, not
because Plaintiffs chose to use SDI based on SDI’s alleged misrepresentations. (Id.) SDI’s
argument comes up short. Even if Plaintiffs did not rely on SDI’s alleged misrepresentations in
selecting SDI as their site selection consultant, the allegations in the Complaint support a
plausible inference that Plaintiffs relied on SDI’s alleged expertise and misrepresentations in
28
choosing the “Streets of Woodfield” site and in continuing to invest additional time and money
into the restaurant, which, Plaintiffs assert, was a lost cause from the start. (See Compl. ¶¶ 51,
54, 58-60, 62.) Thus, Plaintiffs have adequately pled reliance.
CONCLUSION
For the reasons stated above, the Court grants in part and denies in part Plaintiffs’ motion
to strike, and strikes Exhibits B-E and all arguments based on those exhibits from Defendants’
briefs. The Court also grants in part and denies in part the Saladworks Defendants’ and SDI’s
motions to dismiss. Plaintiffs may file a Third Amended Complaint on or before November 20,
2013, consistent with this Opinion.
DATED: November 4, 2013
ENTERED
______________________________
AMY J. ST. EVE
U.S. District Court Judge
29
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